Tim Hughes puts the boot into the highs and lows of the online travel business (with an Australasian/Asian bias) with some blogging about consuming and loving travel thrown in.

Saturday, June 02, 2007

Low cost carriers and the world of aviation: Too many acronyms - brain hurts

Originally it was simple. There were full service carriers and low cost carriers (LCCs). Full service gave you food, a pillow and a nice movie. LCCs promised to eventually take you where you wanted to go and to not punch you in the head on the way there.

Then the word became confusing again. LCCs in some markets - like Virgin Blue in my own sweet home Bondi - said that they did not want to be called Low Cost Carriers any more. Now they wanted to be called - New World Carriers. Lots of marketing gumpf thrown around as to what this means but common themes are - really cheap but we still want a frequent flyer program, business lounge and pricing structure that allows for cancellations. In other words- a normal carrier without first/business class in short haul and with better (read tougher) deals with cabin crew unions.

The eventual response of full service carriers to the LCC phenom was to launch LCC offshoots. United launched Ted, Delta did Song, British Airways went Go, Qantas did Jetstar etc. However the push for new brands and cost structures was not an all round success. Ted is still flying and Jetstar is the fastest growing Airline in Australia. But - Song is no more. Its operations have been absorbed into Delta and Go was hastily sold first to PE firm then to easyJet and absorbed into the easyJet brand.

This leaves me thinking about how distinct are the differences between an LCC and full service carrier. Before I could come to a conclusion in these musings, e-tid reported today (registration required)that Virgin-Blue is

considering setting up a ‘super low-cost unit’ to compete with Singapore-based Tiger Airways, which starts Australian domestic flights later this year.

So here we have a "I used to be a Low Cost Carrier but now I am a New World Carrier" being spooked by the entry in Australia of another LCC. The response - push the initial brand into full service (or as the CEO is quoted by eTid - "up market") and then act like a traditional carrier and create a new brand that does everything that Virgin Blue used to do but without the frills.

Fascinating strategy. It seems to me that there is a space in any market for carriers that base everything they do on price to the point of sacrificing customer service and convenience. However this model reaches a growth point especially in a market where for geographical reasons there is a limit to the potential for a short-haul market. Beyond that point service and flexibility have value to consumers. Similarly the scope for differentiation just on price is reduced. I expect that Virgin-Blue did not anticipate that it would find itself in that circumstance - having to increase costs by providing services for the business traveller to feed growth levels and then have to mimic its nemesis by launching a secondary brand. Brett and Virgin-Blue - if you do launch and new carrier to fight Tiger then it is time to cut the acronym crap (CTAC) and accept that you are a normal, everyday, regular airline that wants to provide business travellers with whatever they want (and charge accordingly) to keep them happy and flying.

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